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Post by GSV3MIaC on Nov 3, 2016 16:37:36 GMT
It is interesting how much FC are steepening the curve with these. samford71 makes some good points about coming inflation in the inflation thread elsewhere on this forum. I guess that Trump/Brexit (etc) uncertainty might steepen the curve from a credit point of view as well as inflation. Does anyone have any thoughts about how much greater impact a sharp downturn might have on D and E loans vs A+ and A loans compared to expected default rates? Not directly, but you could look at p2pindependentforum.com/post/150457and draw some scary conclusions.
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Post by Deleted on Nov 5, 2016 17:49:43 GMT
In response to the interest rate changes is the common consensus to sell C, D and E loans before the higher rates appear and render them unsellable on the SM ??
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jamesc
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Post by jamesc on Nov 5, 2016 18:01:30 GMT
In response to the interest rate changes is the common consensus to sell C, D and E loans before the higher rates appear and render them unsellable on the SM ?? I'm not sure really, it appears to be what people are doing but the big question is will they become unsellable ? Clearly they probably wont command the high premiums that they used to, but ' unsellable' why do you think that ? Keen to see what other people think ?
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Post by Deleted on Nov 5, 2016 18:09:31 GMT
Well I am by no means any sort of expert but my assumption was based purely on the concept that new loans being offered in the same risk category at a few percent higher would surely be a stronger draw than lower rates on the SM ??
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adrianc
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Post by adrianc on Nov 5, 2016 18:12:45 GMT
In response to the interest rate changes is the common consensus to sell C, D and E loans before the higher rates appear and render them unsellable on the SM ?? I'm not sure really, it appears to be what people are doing but the big question is will they become unsellable ? Clearly they probably wont command the high premiums that they used to, but ' unsellable' why do you think that ? Keen to see what other people think ?
Will there be sufficient supply to really depress demand?
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Post by GSV3MIaC on Nov 5, 2016 18:27:21 GMT
/mod hat off
I think they'll be in even shorter supply.
If all else fails they almost certainly sell to autobiddies at par (although new autobiddies may have highr rate set, I presume few of the current ones will adjust).
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blender
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Post by blender on Nov 5, 2016 22:00:14 GMT
I think anything will continue to sell at par.
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fasty
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Post by fasty on Nov 6, 2016 0:37:49 GMT
D is the new E.
And E's have become as rare as rocking horse poo on the PM.
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nick
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Post by nick on Nov 6, 2016 21:29:24 GMT
In response to the interest rate changes is the common consensus to sell C, D and E loans before the higher rates appear and render them unsellable on the SM ?? I'm not sure really, it appears to be what people are doing but the big question is will they become unsellable ? Clearly they probably wont command the high premiums that they used to, but ' unsellable' why do you think that ? Keen to see what other people think ?
I think that it will be a lot harder to sell on old C, D & E loans at par after the rate change as new auto-bidders will default to the higher rates and they will be noncompetitive against new loans on the SM. Only those autobidders who have used the advanced settings and have failed to change their minimum bid rates will continue to be automatic bidders for these loan parts at par. Furthermore, sellers of new loan parts will be able to charge the maximum 3% premium for most D & E loan parts and still offer a higher effective rate than the old loan parts offered at par. For example, a 21.9% 60 E loan when sold at a 3% premium would still have an effective rate north of 20%. Conversely, you would need to offer a 60 mth 14.1% E part at a 12%+ discount to get near an effective rate of 20%. My conclusion is that old C, D & E (in particular D & E) will be increasingly difficult to sell at par, and in the case of D & E loans, difficult to sell without very hefty discounts. It may well take a few weeks until a number of the new rate loans trickle through on to the SM, but I can see any buyers of these older loan parts in time. Its not an issue if you intend to hold your current holdings to maturity, but the impact on the liquidity of your portfolio should be considered. I place a lot of value on liquidity so have already listed and sold most of C, D & E loan parts at par. I may well of been able to sell them at a slight premium over time, but I viewed the risk of maybe being forever stuck with these parts versus taking a small hit selling at par as a easy decision to make.
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blender
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Post by blender on Nov 6, 2016 22:41:17 GMT
I'm not sure really, it appears to be what people are doing but the big question is will they become unsellable ? Clearly they probably wont command the high premiums that they used to, but ' unsellable' why do you think that ? Keen to see what other people think ?
I think that it will be a lot harder to sell on old C, D & E loans at par after the rate change as new auto-bidders will default to the higher rates and they will be noncompetitive against new loans on the SM. Only those autobidders who have used the advanced settings and have failed to change their minimum bid rates will continue to be automatic bidders for these loan parts at par. Furthermore, sellers of new loan parts will be able to charge the maximum 3% premium for most D & E loan parts and still offer a higher effective rate than the old loan parts offered at par. For example, a 21.9% 60 E loan when sold at a 3% premium would still have an effective rate north of 20%. Conversely, you would need to offer a 60 mth 14.1% E part at a 12%+ discount to get near an effective rate of 20%. ... Interesting. Are you saying that FC will adjust the non-advanced Autobidders' settings for E loans on the SM such that the will not buy the existing E loans at par? They will not get the new Es at par and FC will stop them getting the old ones? Does not sound good for the liquidity of normal lenders - and Autobid/Autosale is there to provide liquidity, as well as building a portfolio.
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fasty
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Post by fasty on Nov 6, 2016 23:05:09 GMT
I think that it will be a lot harder to sell on old C, D & E loans at par after the rate change as new auto-bidders will default to the higher rates and they will be noncompetitive against new loans on the SM. Only those autobidders who have used the advanced settings and have failed to change their minimum bid rates will continue to be automatic bidders for these loan parts at par. Furthermore, sellers of new loan parts will be able to charge the maximum 3% premium for most D & E loan parts and still offer a higher effective rate than the old loan parts offered at par. For example, a 21.9% 60 E loan when sold at a 3% premium would still have an effective rate north of 20%. Conversely, you would need to offer a 60 mth 14.1% E part at a 12%+ discount to get near an effective rate of 20%. ... Interesting. Are you saying that FC will adjust the non-advanced Autobidders' settings for E loans on the SM such that the will not buy the existing E loans at par? They will not get the new Es at par and FC will stop them getting the old ones? Does not sound good for the liquidity of normal lenders - and Autobid/Autosale is there to provide liquidity, as well as building a portfolio. FC actually said "The interest rates you currently have saved in your Autobid settings will still apply for buying loan parts on the secondary market. If you want to update your settings in order to buy loan parts on the secondary market at different rates, you can update them by logging into your account and navigating to Autobid." I don't know whether the "default" autobid rates for new FC joiners might be different.
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blender
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Post by blender on Nov 6, 2016 23:21:37 GMT
Thanks, fasty. Yes the default rates for new Autobid joiners will correspond to the new rates. But I do not think FC could change an Autobidders existing settings unilaterally, how do they know whether they were set by default or by choice? They warn Autobidders to check their settings frequently, in part because rates change. And they would not do it because they wish to provide liquidity. Sorry Nick, but I think the panic is not necessary.
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fasty
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Post by fasty on Nov 6, 2016 23:32:53 GMT
I see that someone is already dumping very fresh D-rated parts on the SM at discount.
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nick
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Post by nick on Nov 7, 2016 7:44:53 GMT
Thanks, fasty. Yes the default rates for new Autobid joiners will correspond to the new rates. But I do not think FC could change an Autobidders existing settings unilaterally, how do they know whether they were set by default or by choice? They warn Autobidders to check their settings frequently, in part because rates change. And they would not do it because they wish to provide liquidity. Sorry Nick, but I think the panic is not necessary. I believe that most investors don't set use the advanced settings and the standard autobid rates for the SM default to the primary market rate. I agree there is probably no reason to panic, but my view was to be better safe than sorry, particularly given the cost of liquidating at par is low, really just potentially the small premium you may have otherwise earnt and any interest rate differential lost when deploying the funds elsewhere. In the event of the SM in these loans does dry up, the cost of exiting the positions could be substantial in the worst case. If you always intended to hold the loan parts to maturity and you don't need to rely on your your FC investment for liquidity, then holding on to these loan parts may make sense.
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blender
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Post by blender on Nov 7, 2016 8:55:53 GMT
I believe that most investors don't set use the advanced settings and the standard autobid rates for the SM default to the primary market rate.This is true when Autobid is first set up, but after that I believe you have to use the advanced settings to alter the rates on the SM. FC have no authority to alter the rates investors bid at, nor would they want to do it. Consider at the warning on the Autobid page about the need to update settings after an interest rate change. Consider also that the Autobid function in the platform does not apply rates when purchasing on the PM and just buys anything, so there is no change required to Autobid settings for any investor when PM rates change. Rates are applicable only to the SM, and they are not going to go through all the Autobid investors, decide whether each SM rate has been made by default or choice, and change those which they believe have been made by default, unilaterally and without telling the investor. I believe that few Autobidders will reset their rates through the advanced settings and old loans will go at par (which is what FC want to happen for Autosale).
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